H&R REIT breakup splits assets among five buyers

H&R REIT is selling itself in pieces, and the pieces are going to five buyers. The Toronto-based trust said Tuesday it agreed to be acquired for about $4.8 billion by a consortium led by GO Residential REIT, with Blackstone Real Estate, Crestpoint Real Estate Investments, PSP Investments and a company controlled by H&R CEO Tom Hofstedter's family as co-purchasers, Bisnow reports.

The 27 properties GO is acquiring include 23 Sun Belt residential buildings, a 50% interest in a mixed-use Miami property, a New York office tower and a mixed-use office asset in Dallas. Blackstone, PSP and Crestpoint take the Canadian industrial properties, 66 buildings totaling 8.3 million square feet. The Hofstedter family company absorbs the remaining noncore assets. Unitholders receive CA$4.28 in cash plus 0.57 GO units for each H&R unit, representing a 14.5% premium. Including assumed debt, the transaction is valued at about CA$6.7 billion.

The sale caps a years-long pivot out of office and retail. At the end of March, H&R held about $5.8 billion of assets, with residential at 60% and industrial at 25%. The trust has significantly underperformed other Canadian real estate companies over the past decade. H&R's lead independent trustee, Stephen Gross, told Bloomberg the company ran an exhaustive review of its options last year, a process that led to the breakup decision.

Blackstone was reportedly in talks in June to buy H&R's entire portfolio of more than 20 million square feet of North American real estate. In the end, the buyout firm's role narrowed to the industrial package. GO, a trust launched last year to own luxury high-rise apartments in the New York metro area, moved to the center of the deal.

The transaction quadruples GO's portfolio, to 35 properties across eight U.S. markets. By GO's count, that makes it the second-largest publicly traded residential REIT in Canada. The new assets tilt the mix toward the Sun Belt, where 23 of the 27 properties are located, and its existing New York properties become a smaller piece of the whole.

CEO Joshua Gotlib said the deal builds on GO's New York luxury foundation, adding Sun Belt scale, balance-sheet strength and earnings growth that should put the platform in front of a different class of investor. The cash-and-units consideration gives H&R unitholders a stake in that enlarged platform rather than a clean cash exit.

The logic of the breakup is that each buyer takes assets it can underwrite on its own merits. GO gets housing it can operate; Blackstone and its partners get industrial; the Hofstedter family gets the rest. That is likely why a trust that underperformed its Canadian peers for a decade could still draw a premium: no single bidder had to buy the whole mix.

The test now falls on GO's operators. They built their record in New York high-rises; the deal asks them to manage 23 Sun Belt apartments from a Toronto platform. If the pieces outperform the old whole, other discounted Canadian REITs may adopt the same roadmap.